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January 25, 2013

Fidelity to SEC: Money Funds Don’t Need Further Reform

Fidelity says any additional overhaul should exclude Treasury, government and tax-exempt funds

Fidelity Investments told the Securities and Exchange Commission on Friday that the investment company believes that the 2010 reforms made to money market funds were “sufficient,” and that if the SEC decides to issue further reform proposals that they “be based on data and facts that are accurate and complete” and that Treasury, government and tax-exempt money-market mutual funds be exempt from any further reform.

Scott Goebel, senior vice presidentand general counsel at Fidelity, told the SEC in his Jan. 24 comment letter that Fidelity was responding to the SEC study issued last November on money-market funds that was requested by three SEC commissioners, Luis Aguilar, Troy Paredes and Daniel Gallagher.

All three commissioners told former SEC Chairwoman Mary Schapiro last year that they would not back her efforts to pass further money market fund reforms.

Goebel told the SEC in his comment letter that Fidelity “continues to believe that the 2010 reforms have made money-market mutual funds more resilient and that additional reform is not necessary.” However, he continued, “to the extent that regulators continue to explore additional reforms, it is critical that any new proposals be based on data and facts that are accurate and complete and that any reforms apply only to the appropriate universe of funds.”

As Goebel pointed out, the SEC study, “Response to Questions Posed by Commissioners Aguilar, Paredes and Gallagher,”addresses the three commissioners’ questions regarding money-market fund activity during the 2008 financial crisis, the efficacy of the 2010 money fund reforms, and how money funds would have performed in 2008 had the 2010 reforms been in place at the time.

“As the SEC study recognizes, not all money-market mutual funds have performed similarly during times of financial stress. Accordingly, we believe the data supports excluding Treasury, government, and tax-exempt money market mutual funds from any further reform,” Goebel said.

Moreover, he continued, “within the category of ‘prime’ money-market mutual funds, we believe that differences in redemption patterns between ‘retail’ and ‘institutional’ funds warrant further examination and definition before determining which, if any, of these funds should be subject to additional reforms.”

Fidelity, Goebel said, urges “the commission to give full consideration to these materials as it evaluates the appropriateness of any additional regulation for money-market mutual funds.”